1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION
2 450 N STREET
3 SACRAMENTO, CALIFORNIA
4
5
6
7 REPORTER'S TRANSCRIPT
8 MAY 22, 2014
9
10 F PUBLIC HEARINGS
11 F3 PROPOSED ADOPTION OF
12 AMENDMENTS TO RULE 133
13 BUSINESS INVENTORY EXEMPTION
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22 Reported by: Juli Price Jackson
23 No. CSR 5214
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1 P R E S E N T
2 For the Board Jerome E. Horton
of Equalization: Chairman
3
4 Michelle Steel
Vice-Chairwoman
5
6 Betty T. Yee
Member
7
8 George Runner
Member
9
10 Marcy Jo Mandel
Appearing for John
11 Chiang,State
Controller (per
12 Government Code
Section 7.9)
13
14 Joann Richmond
Chief, Board
15 Proceedings Division
16
17 For Board Staff: Richard Moon
Tax Counsel IV
18 Legal Department
19
20 ---oOo---
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1 INDEX OF SPEAKERS
2 NAME PAGE
3 LARRY STONE 6
Assessor, Santa Clara County
4
5 ALBERT RAMSEYER 10
Principal Deputy County Counsel
6 Counsel for LA County Assessor
7 DEBRA REYNOLDS CLARK 16
Senior Tax Manager
8 United Launch Alliance
9 DENNIS LOPER 20
SpaceX
10
MARTY DAKESSIAN 21
11 Attorney, Reed Smith
SpaceX
12
13 ---o0o---
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1 450 N STREET
2 SACRAMENTO, CALIFORNIA
3
4 MAY 22, 2014
5 ---oOo---
6 MR. HORTON: Ms. Richmond, our next matter.
7 MS. RICHMOND: Our next item is F3,
8 proposed adoption of amendments to Rule 133,
9 Business Inventory Exemption.
10 And we do have several speakers.
11 MR. HORTON: Okay. I guess they're
12 forthcoming.
13 Give me a second to get sort of organized
14 here.
15 In the essence of time, I'm going to ask
16 that -- we have one, two, three, four chairs -- ask
17 four of the speakers to come forward.
18 The Santa Clara County Assessor, Mr. Larry
19 Stone, would you please come forward?
20 The Principal Deputy County Counsel,
21 counsel for LA County Assessor, Albert Ramseyer,
22 please come forward.
23 United Launch Alliance, Vanberg (verbatim)
24 Range Coordinator, Mr. Phil Anderson, please come
25 forward.
26 And Senior Tax Manager, United Launch
27 Alliance -- I don't know if both of you want to come
28 forward, but you are certainly welcome, certainly
4
1 would encourage you to you try to avoid any
2 redundancy, it's your desire to sit on the opposite
3 side of these gentlemen?
4 MS. REYNOLDS CLARK: I don't know where you
5 want us to sit.
6 MR. HORTON: You know, you never know. I'm
7 just calling names here, so, you're all smiling,
8 that's a good thing.
9 Please come forward.
10 Welcome, Mr. Moon. Would you please -- I
11 thought I heard you introduce yourself for the
12 record .
13 MR. MOON: No, not yet.
14 MR. HORTON: Please proceed.
15 MR. MOON: Good afternoon, Mr. Chairman and
16 Members of the Board.
17 Richard Moon with the Legal Department.
18 We're here to ask the Board to vote to adopt the
19 proposed amendments to Rule 133, which clarify that
20 the business inventory exemption applies to
21 non-reusable space flight property, over which
22 control is relinquished at launch to a federal
23 launch safety authority.
24 And I'd also note that if the Board
25 approves, we had made a typo in some of the
26 documents that were issued to OAL and we would, of
27 course, correct those.
28 And I'd be happy to provide any detail or
5
1 answer any questions either now or at the conclusion
2 of the -- of the comments.
3 MR. HORTON: Yes. Members, out of
4 deference to the assessor, I'm going to ask that he
5 start us off, if that be his desire.
6 ---o0o---
7 LARRY STONE
8 ASSESSOR, SANTA CLARA COUNTY
9 ---o0o---
10 MR. STONE: Thank you, Mr. Chairman and
11 Members of the Board. I'm Larry Stone, the County
12 Assessor of Santa Clara County.
13 In February you directed your staff to
14 provide, quote,
15 "More information regarding the
16 factual control of the equipment before,
17 during and after launch."
18 Nearly three months later your staff still
19 has not addressed the fundamental question of who
20 owns the space vehicles when they return to Earth?
21 Instead, your staff focused exclusively on
22 what occurs at launch. They described in some
23 detail the federal government's control at the
24 moment of launch and their authority, if necessary,
25 to destroy a spacecraft.
26 That authority is no different than the
27 authority exercised by the FAA over commercial
28 airlines -- as we saw when they ordered all aircraft
6
1 down during 9-11.
2 And let's be clear, the federal government
3 never -- the federal government never obtains legal
4 ownership to any property in direct conflict with
5 your staff's assertion.
6 One need no -- look no further than SpaceX,
7 which proudly displays a returned spacecraft in
8 their lobby.
9 Is the BOE really saying that this
10 spacecraft is owned by NASA? In news articles
11 over -- over a year ago, SpaceX extensively
12 described how hours into a rendezvous with the
13 international space station, one of their spaceships
14 ran into problems. SpaceX provided great detail
15 about how their staff, not NASA, fixed the problem.
16 The evidence refuting your staff's
17 conclusion is overwhelming and irrefutable. Your
18 staff relied mostly entirely on one of the prime
19 beneficiaries of this rule, United Launch Space
20 Alliance, to arrive at their conclusion. They
21 relied on, quote,
22 "Informational discussion, informal
23 discussions with Vandenberg Air Force
24 base personnel."
25 In contrast, I contacted the Associate
26 Center Director for the Kennedy Space Center in
27 Florida. And through his spokesperson, he said
28 and -- I quote,
7
1 "The range safety officer only
2 has possession of the spacecraft
3 purely for safety reasons." End quote.
4 SpaceX financial model is predicated on the
5 reuse of its space vehicles. SpaceX makes one claim
6 to assessors, that the vehicles it launches into
7 space cannot be reused for space exploration and,
8 therefore, are not taxable.
9 Yet they tell the public and their
10 investors an entirely different story. In a segment
11 on "60 Minutes," just this last March 30th, SpaceX
12 made clear that it plans for its rockets to return
13 to Earth with a, quote, "soft landing," that will
14 not damage the rocket.
15 Since then they have successfully returned
16 a spacecraft to Earth. This rule would likely
17 preclude assessing that property.
18 In a recent article, and I quote,
19 "Elon Musk announced a major
20 breakthrough in spacecraft and space
21 flight on Friday. The successful soft
22 landing of Falcon's 9s reusable,"
23 underscore reusable, "rocket booster
24 stage in the Atlantic Ocean." End quote.
25 It is clear you are being misled by your
26 staff with glaring factual errors.
27 The FAA Joint Program Management Plan, a
28 written document published by NASA -- by the NASA
8
1 International Space Station Program and to which
2 SpaceX is a signator, states, and I quote,
3 "SpaceX always -- always has
4 prime responsibility."
5 This rule should be rejected because of the
6 BOE staff faulty reasoning that this equipment
7 should be considered inventory. That defies common
8 sense and reflects a complete disregard for the
9 overwhelming evidence.
10 To suggest that spacecraft is inventory of
11 a company is a reach that is far beyond what we
12 should be doing.
13 SpaceX is not in the business of selling or
14 leasing property. Rather, they are in the same
15 business as UPS or FedEx or, eventually, I guess,
16 United Airlines and Southwest Air.
17 SpaceX provides a service, transportation
18 service, which is delivered -- which is to deliver
19 cargo to and from the international space station.
20 The BOE analysis that the subject space
21 property somehow qualifies as business inventory has
22 no merit.
23 More importantly, we are concerned with the
24 dangerous precedent that this would set. If the BOE
25 decides with this rule that you can expect -- you
26 can expect other companies will argue their
27 equipment is also inventory.
28 I urge the BOE to reject this rule. Thank
9
1 you.
2 MR. HORTON: Thank you very much, Assessor
3 Stone.
4 I believe Mr. Ramseyer would share that.
5 MR. RAMSEYER: Good afternoon.
6 No, I'd like to --
7 MR. HORTON: Yes.
8 MR. RAMSEYER: -- say a few, say a few
9 words, Chairman Horton and Members --
10 MR. HORTON: Yes.
11 Just for my own clarification, you --
12 ---o0o---
13 ALBERT RAMSEYER
14 PRINCIPAL DEPUTY COUNTY COUNSEL
15 ---o0o---
16 MR. RAMSEYER: Albert Ramseyer, Principal
17 Deputy County Counsel appearing for the assessor.
18 MR. HORTON: Thank you, sir.
19 MR. RAMSEYER: I've been representing the
20 LA County Assessor for about 25 years.
21 MR. HORTON: Excellent.
22 MR. RAMSEYER: And first of all, I'd like
23 to tie in with Mr. Moon's request to correct some
24 typos.
25 There was a typo on the letter submitted by
26 my office dated May 20th on page 4. And if I could
27 have consent, Mr. Chairman, to provide a corrected
28 electronic version, say by tomorrow?
10
1 MR. HORTON: Uhmm --
2 MR. RAMSEYER: Update -- to correct the
3 file?
4 MR. HORTON: Certainly, you can certainly
5 provide the -- the version and if it's possible, can
6 you give it to us today?
7 MR. RAMSEYER: And I only have handwritten
8 corrections, Mr. Chairman.
9 MR. HORTON: That will work.
10 MR. RAMSEYER: Okay.
11 MR. HORTON: And we will take those
12 corrections. I would ask that you submit them to
13 Ms. Richmond.
14 And then we will submit them to Mr. Moon
15 and ask Mr. Moon to testify on the necessity to
16 incorporate that in their presentation.
17 MR. RAMSEYER: May I show it to him right
18 now?
19 MR. HORTON: No, continue with your
20 representation.
21 MR. RAMSEYER: Okay.
22 MR. HORTON: And when I go on to the next
23 speaker, then you can --
24 MR. RAMSEYER: Okay.
25 MR. HORTON: Okay.
26 MR. RAMSEYER: That's fine.
27 You know, I'd also like to tie in with
28 Assessor Stone's point regarding the proposed rule
11
1 amendment not being supported by substantial
2 evidence and not being consistent with the law.
3 In 1984 Congress enacted an act called the
4 Commercial Space Launch Act of 1984 that privatized
5 space transportation business and allowed for
6 commercial activity.
7 And what this -- the problem with staff's
8 analysis here is it -- it's based upon a false
9 premise. And that false premise is that ULA and
10 SpaceX are in the rocket manufacturing business.
11 They're not in the manufacturing business,
12 they're in the launch business. Their business, as
13 I understand it -- and they're here today -- their
14 business is to transport cargo into outer space.
15 And Congress privatized that business and,
16 naturally, when you -- when you ignite a rocket,
17 there's going to be safety concerns.
18 But they -- pursuant to Code of Federal
19 Regulations, they contract with federal government
20 for the use of the federal launch facilities and for
21 safety systems. But those services are provided by
22 contract to SpaceX, a private corporation.
23 So, what is it? What business is it that
24 they're in? Who is the end user of those rockets?
25 Is the end user of those rockets the
26 federal government? Or is the end user of those
27 rockets actually SpaceX?
28 And -- and -- and the answer there is
12
1 clear, it's SpaceX. We've seen this before where
2 you have this kind of a public-private type of
3 relations. And we've seen it before where the
4 private company takes the benefits and then when
5 there is burdens involved, they want to put the
6 burdens on government.
7 Well, that's -- that's not how it should go
8 here. If you're in private -- if you are in private
9 business, you should incur the same tax obligation
10 that every other private business incurs that's in
11 commercial enterprise.
12 And, so, they're in the launch business.
13 They are the end user of those rockets. They are
14 the owner of that -- of those assets. They're
15 subject to California property tax on those assets.
16 It's the legislature's prerogative whether
17 to exempt that property or not, it's not this
18 Board's prerogative. This Board has rulemaking
19 authority, but that rulemaking authority has to be
20 consistent with law.
21 The law that applies here is Revenue and
22 Taxation Code Section 129, which defines business
23 inventory as property held for sale in the ordinary
24 course of business. Those rockets are not built to
25 be held for sale. Those rockets are used for the
26 launch business. They're up -- they're a launch
27 company. They provide launch services. Those
28 rockets are subject to assessment.
13
1 If they are to be exempt, they should be
2 exempted by the legislature, not by this Board.
3 The other -- the other rationale that's
4 provided is that somehow this property is now
5 federal -- this property is -- this property, when
6 it goes on the entry, somehow becomes in the custody
7 of the United States government.
8 Whatever role the government has in that
9 launch operation is for safety purposes. And we
10 see govern -- government has -- of course, we know
11 this, being Californians, everything is potentially
12 subject to regulation -- food, drug manufacturers,
13 construction -- everything is subject to a potential
14 government official coming in and saying, "Halt your
15 operation."
16 But that does not make it a government
17 asset and that does not make that property exempt
18 from property tax. And to say -- to say that is
19 simply inconsistent with the law.
20 And that's my two words. Thank you very
21 much.
22 MR. HORTON: Thank you very much.
23 You can now, if you so desire, provide us a
24 copy --
25 MR. RAMSEYER: Thank you.
26 MR. HORTON: -- of that as we move through
27 the --
28 MR. RAMSEYER: I would still like to follow
14
1 up with an electronic copy just because it's
2 cleaner.
3 MR. HORTON: Yes, please.
4 Do you need your original? Is that your
5 original?
6 MR. RAMSEYER: Yes, but I know where the
7 corrections are, Mr. Chairman.
8 MR. HORTON: Well, let's -- let's do this:
9 Mr. Moon, can you provide that to Ms. Richmond and
10 we will ask that they make a copy of it and give
11 you -- return your original to you, just to make
12 sure -- so, you know, make it as simple as we can to
13 get your thoughts.
14 MR. RAMSEYER: Thank you very much.
15 MR. HORTON: Members, we'll now, in the
16 essence, go to the other witnesses that are here to
17 hear their testimony.
18 And I would remind the Members that we have
19 two additional witnesses that we will try to
20 accommodate.
21 And I guess we can -- in the essence of
22 time, let's ask them to come on and come forward.
23 Mr. Dennis Loper, representing SpaceX;
24 Marty Dakessian, attorney at Reed Smith,
25 representing SpaceX.
26 Okay, Mr. Reynolds -- Ms. Reynolds Clark,
27 State Tax Manager with United Launch Alliance.
28 MS. REYNOLDS CLARK: Yes.
15
1 MR. HORTON: Welcome to the Board of
2 Equalization.
3 ---o0o---
4 DEBRA REYNOLDS CLARK
5 SENIOR TAX MANAGER
6 UNITED LAUNCH ALLIANCE
7 ---o0o---
8 MS. REYNOLDS CLARK: Well, thank you. And
9 I want to thank the Board and their staff for
10 spearheading this rule.
11 And I thought that their policy statement
12 overview was an excellent analysis of the actual
13 facts. And I think they have done a tremendous job.
14 This is a very difficult subject and complex.
15 There is a couple of things -- facts that
16 I'd like to set straight. I've made these comments
17 to you before, but they seem to be recurring themes
18 from the assessors that oppose this rule.
19 First of all, this isn't a single company
20 rule, this is an industry rule. United Launch
21 Alliance has been launching our polar orbits
22 missions from three different space complex in
23 Vandenberg since 2007. And prior to that, our
24 member companies, Lockheed and Boeing, were
25 launching.
26 Over, I would say at least the last 15
27 years, ULA, Lockheed, Boeing, have all been subject
28 to personal property tax audits. The government
16
1 contracts have not changed at all in the last 15
2 years. And the county assessors have always treated
3 the rockets as inventory for 15 plus years.
4 Now, to me, that's similar to an easement.
5 An easement is established in seven years. After 15
6 years of treating this as inventory, I find it very
7 unfair to the taxpayer to all of a sudden change the
8 rules without any notification.
9 Now to the reusable question, our vehicles
10 are 100 percent EELV, that stands for evolved,
11 expendable launch vehicles. The expendable means
12 that they are expended in the delivery of the
13 satellite. They do not come back. They are not
14 reusable. They're gone. And it's 100 percent EELV
15 contracts. That's all we have. All right, there's
16 nothing coming back to Earth.
17 Now as far as the control issue and this
18 whole business about whether the facts are right or
19 not, I brought Phil Anderson. He is our Vandenberg
20 Range Coordinator. He actually works with the --
21 the Air Force in the range safety. So, if there's
22 any technical questions you have, he'll be able to
23 handle them -- like I said, 'cause he understands
24 this probably even better than I do.
25 One thing that -- just kind of give you a
26 little overview, the Range Safety Officer of the
27 federal government actually takes control of the
28 rocket before take-off. So, before it's even
17
1 launched, so, somewhere under T minus 4 they'll take
2 control. They can blow that rocket up right on the
3 pad if there's a problem, if there's going to be a
4 threat to public safety.
5 Now being able to destroy a rocket is the
6 ultimate sign of ownership. It's the ultimate sign
7 of control. You can destroy it.
8 And I know that this issue about maybe
9 merging with -- back with the space station, we
10 don't do that. But to me, within 18 seconds that
11 rocket is so far out of California, even if the
12 company did take possession again, it's out of
13 California at the time it would transfer back -- and
14 I'm not saying it does.
15 And for some reason it seems to me that I
16 believe the assessors think that we've got somebody
17 sitting with a joystick steering that rocket. And
18 if that was true, every 13 year-old boy in the world
19 would be lined up for this job, right?
20 But, unfortunately, what happens is that
21 the everything that is needed to -- to steer and
22 deliver that satellite has been programmed into the
23 software of the rocket. Once the rocket takes off,
24 that's it. It's done. There is -- you know, we
25 have no more -- no more ability to control it.
26 I also wanted to state that as far as an
27 economic issue, you know, ULA employs hundreds of
28 people in Vandenberg and these aren't minimum wage
18
1 jobs, these are good jobs.
2 And we think that just for the space
3 industry there should be some exemptions that are
4 similar to what Florida is giving.
5 So, we launch rockets also from Florida.
6 Florida has spaceport exemption. There's no
7 personal property tax on anything. There is no real
8 property tax. There's no possessory property tax.
9 And this makes it much more attractive to do
10 business in Florida.
11 And I believe that California should really
12 reconsider being able to attract the space vehicle
13 business back to California, because it used to be
14 the aerospace mecca.
15 And I think that's -- I'd just recommend
16 that the Board adopt this rule. I think it will be
17 helpful in -- in generating some economic
18 development here. And also it will memorialize what
19 the assessors have been doing in practice over the
20 last 15 years.
21 MR. HORTON: And Mr. Anderson, I'm
22 presuming is here as an expert witness?
23 MS. REYNOLDS CLARK: Yes, yes.
24 MR. HORTON: Okay.
25 MS. REYNOLDS CLARK: So, if there's
26 questions, we wanted to allow him to be here to
27 answer.
28 MR. HORTON: Thank you very much.
19
1 We will now go on to Mr. Dennis Loper with
2 SpaceX.
3 ---o0o---
4 DENNIS LOPER
5 SPACEX
6 ---o0o---
7 MR. LOPER: Thank you, Mr. Chairman and
8 Members.
9 MR. HORTON: Please identify yourself.
10 MR. LOPER: Dennis Loper representing
11 SpaceX.
12 First of all, we strongly agree with the
13 legal analysis of Ms. -- of the general counsel --
14 chief counsel.
15 We believe and have always believed that
16 our inventory is business inventory. We believe
17 that -- that the -- we secede control to the federal
18 safety launch officer. And we're a little
19 different, we're at T-5, I'm told.
20 And as a launch operator we're required to
21 work with the FAA and the Range Safety Officer
22 prior to -- prior to launch to prepare them to make
23 the launch work.
24 The Range Safety Officer has sole control
25 of the rocket. And I will leave it with that to
26 Marty Dakessian, but with just two asides because --
27 because it seems that people want to attack the
28 company that I represent.
20
1 And both Mr. Stone and Mr. Ramseyer seem to
2 have you focused on something about us that --
3 that -- they're not not correct. There is a capsule
4 in our Hawthorne facility, but it'll never been used
5 again. It did return, but it's unusable.
6 We have a whole set of those out in Texas,
7 if they want to go look at them, but they're not
8 reusable.
9 Now, does -- does our company wish it some
10 day to be reusable? We do. But at this point
11 neither the federal government or range safety would
12 allow that.
13 So, with that I'll turn it over to
14 Mr. Dakessian.
15 MR. HORTON: Welcome, Mr. Dakessian.
16 Introduce yourself.
17 MR. LOPER: And one other aside. I'm
18 wondering if this is the same advice given on the
19 DirecTV case 12 years ago?
20 MR. HORTON: Welcome, Mr. Dakessian.
21 Please introduce yourself for the record.
22 You have three minutes.
23 ---o0o---
24 MARTY DAKESSIAN
25 SPACEX
26 ---o0o---
27 MR. DAKESSIAN: Good afternoon,
28 Mr. Chairman and Members of the Board.
21
1 My name is Marty Dakessian and I represent
2 SpaceX. I work for the law firm Reed Smith.
3 And I have to commend staff, they've done
4 an outstanding job throughout this regulatory
5 process.
6 I agree with our colleagues from United
7 Launch, it was a very difficult subject to tackle.
8 It's a novel issue, which is why we're here and
9 we're glad that the Board has exercised its legal
10 authority to -- to engage in the rulemaking process.
11 And we're very glad that the staff put forth the
12 effort that it did.
13 It's very difficult for me to sit here now
14 through the second hearing, as Mr. Loper has, and
15 hear the potshots that are being taken against
16 SpaceX. It's very difficult for me to do that as an
17 advocate, but I'm going to do my my best to be
18 dispassionate and address the points that were --
19 that were mentioned by -- by our colleagues on the
20 other side of the table.
21 The first point, again, is aspirational,
22 the return of the spacecraft to the Earth is purely
23 aspirational at this point. And why not? We want
24 to move in that direction. It's just not the case
25 today.
26 The analogy with respect to the FAA is
27 completely inappropriate. The FAA does not have the
28 ability to destroy aircraft on a runway. That
22
1 analogy is -- is so bizarre it doesn't even make any
2 sense.
3 The other point that I think people keep
4 getting hung up on is you do not actually need a
5 transfer of legal title in order to qualify as
6 business inventory. That has not been required
7 since the inception of the regulation.
8 There are -- there are portions of the
9 regulation that address property to be regarded
10 as -- as business inventory in a service context, we
11 know that for a fact.
12 This notion -- I am sorry for the speed of
13 my comments but I have limited time, but this notion
14 that safety is the --
15 MR. HORTON: If it helps you to relax, sir,
16 we'll add another minute.
17 MR. DAKESSIAN: -- thank you, thank you.
18 So, this notion of minimizing and
19 downplaying the control of the federal range
20 authority is inappropriate. Safety is not only
21 paramount to any launch, it's the only control that
22 is exercised after T minus 5. There is no other
23 control to be exercised.
24 We agree with United Launch's view here
25 that there's nobody sitting down in mission control
26 with a joystick. Once T minus 5 hits, federal range
27 safety takes over and there is no more control to be
28 had with respect to these -- with these vehicles.
23
1 This point -- again another non sequitur --
2 this point with respect to SpaceX's responsibility
3 for the launch -- responsibility for the launch does
4 not preclude business inventory treatment.
5 Another non sequitur, this time raised by
6 LA County, which is that the fact that SpaceX may be
7 in the space transportation industry -- which it is,
8 it does provide space transportation services --
9 does not disqualify it for business inventory
10 treatment, does not disqualify these vehicles for
11 business inventory treatment. That is just false.
12 That is -- that is completely untrue.
13 It is as untrue in the property tax context
14 as it is in the sales tax context, where we know
15 that the characterization of the -- of the services
16 of the contract doesn't matter, it's what actually
17 happens.
18 And if possession is transferred and
19 control is transferred, there are plenty of
20 annotations and plenty of pieces of guidance by this
21 Board that should -- suggest that -- that is an
22 appropriate treatment for a service industry.
23 And with respect to this point of SpaceX is
24 not a manufacturer, I think LA County has actually
25 gone down and visited the facility -- if that's not
26 a manufacturer of the space vehicles, then I don't
27 know what it is.
28 They build their equipment in-house,
24
1 90 percent of the parts that they use they build
2 themselves right here in Hawthorne, so, there is
3 manufacturing going on.
4 With respect to the -- the treatment of
5 business inventory, this is a theme that's been
6 consistent. For financial accounting purposes, this
7 is business inventory. For sales tax purposes,this
8 is business inventory. For income tax purposes,
9 this is business inventory.
10 The County is trying to -- to impose a
11 different treatment on this than every other area of
12 tax.
13 MR. RAMSEYER: May I ask -- may I inquire?
14 MR. HORTON: Sir, I'm going to allow him to
15 finish his testimony and then, at that point, I
16 would believe that we're not going to get into a
17 question and answer, but the Members may very well
18 engage.
19 And through that process, you may have an
20 opportunity.
21 MR. DAKESSIAN: In conclusion,
22 Mr. Chairman, this property has never before been
23 taxed, so, this whole notion of a retroactive
24 exemption is false on its face.
25 I don't have really anything more to add at
26 this point, but we're here to answer questions.
27 Thank you very much.
28 MR. HORTON: Okay. A lot has been said.
25
1 And, Members, with your indulgence, I would go to
2 Mr. Richard Moon to address some of the issues here
3 and then open it up for discussion to the Members.
4 MR. MOON: I guess I would begin by saying
5 that the Government Code clearly gives the Board the
6 authority to do this type of rulemaking.
7 The Government Code is explicit in giving
8 the Board the power to do classifications of
9 property, which this is, and, especially in an area
10 and an industry that's not entirely -- that doesn't
11 entirely fit things that we've seen in the past, I
12 would think that it's the exact type of transactions
13 and the exact type of industry that's proper for the
14 Board to do rulemaking.
15 In this process of -- of thinking about
16 whether this property qualifies as business
17 inventory under -- under Rule 133, we looked at a
18 number of things.
19 And starting with, of course, the
20 definition, which is the sale of goods in the
21 ordi -- goods intended for sale in the ordinary
22 course of business.
23 In looking at the industry, the regulation
24 and then especially looking at what happens at the
25 end, towards launch, when complete control is
26 essentially given over to the Range Safety Office,
27 it appears to us that that meets the definition of a
28 sale, which is very broad.
26
1 And it says, "by any manner or by any means
2 whatsoever." And when you have that kind of broad
3 language, we believe that it -- that it meets that
4 test.
5 For the sales tax purposes, this would be a
6 transfer, upon which sales tax would be owed, except
7 for the specific exemption.
8 And to be consistent, if it's being treated
9 as a sale, then if prior to the sale you're holding
10 it, then it has to be intended for sale. And, so,
11 it makes sense that for property tax purposes, as
12 well it would be treated as -- as a -- as business
13 inventory.
14 And then I guess lastly what I would add is
15 that it is true that the federal authorities take
16 control for safety purposes. That is absolutely
17 true. But that does not change the fact that they
18 take control.
19 From a certain point prior to launch, they
20 have -- the launch operators have absolutely -- they
21 can do nothing -- they are 100 percent hands off.
22 The only human that can do anything to
23 the -- to the vehicle at that point is the federal
24 authority.
25 MR. HORTON: Thank you very much, Mr. Moon.
26 Members, we'll now go to discussion.
27 Member Yee.
28 MS. YEE: Thank you, Mr. Chairman.
27
1 Question for Mr. Moon, I know there was --
2 and maybe representatives for SpaceX can also
3 comment -- there was bill that was recently
4 enacted --
5 MR. MOON: Yes.
6 MS. YEE: -- that looked at this issue more
7 broadly with respect to all space flight property.
8 I mean, are we kind of headed there any way
9 under that bill?
10 MR. MOON: Yeah, that's correct.
11 So, from lien date 2014, space flight
12 property would be exempt under AB 777.
13 And I would add that there was an
14 uncodified provision in that bill -- in that law
15 that explicitly stated that -- that no inference is
16 to be drawn on whether this property is business
17 inventory with regard to our rule.
18 So, that has no effect on -- on this rule.
19 MS. YEE: Okay. And the limitation with
20 respect to this rule is it does not apply to
21 reusable spacecraft?
22 MR. MOON: Correct.
23 MS. YEE: Okay. I, Mr. Chairman, was the
24 one who initiated more analysis about the existing
25 authorities with respect to the issue of control.
26 And I think one of the issues that we have here is,
27 perhaps -- I didn't really understand the use of use
28 this equipment or -- 'til I read the authorities and
28
1 began to understand a little bit better what this
2 all means.
3 But in some ways the issue of control is --
4 I don't think it's typically how we look at it with
5 respect to --
6 MR. MOON: No, it's not typically how we
7 look at it, that's correct.
8 MS. YEE: -- so -- and Mr. Moon, the case
9 law that you cite, we believe provides sufficient
10 authority for us to --
11 MR. MOON: I do. I think those cases, the
12 reason why they were cited is because those are two
13 cases at least that talk about the element of
14 control --
15 MS. YEE: Yeah.
16 MR. MOON: -- as to whether it's a sale or
17 not. So, ordinarily you would have just a straight
18 sale of goods. Like you could walk into a car
19 dealer and buy a car.
20 MS. YEE: Right.
21 MR. MOON: That would be a sale.
22 But those were at least two cases where --
23 where -- where the transfer of the property didn't
24 follow sort of those straight facts.
25 MS. YEE: Right, okay.
26 Let me pass for now.
27 MR. HORTON: Okay, further discussion
28 Members?
29
1 Hearing none, Member Yee?
2 MS. YEE: This is -- I mean, what I found
3 interesting about this -- and my goal, as far as why
4 I wanted this put over, more analysis about the
5 authorities, I want there to be some clear -- I want
6 there to be clarity for the assessors.
7 And I think there is. And I think part of
8 the difficulty is that the concept of control is not
9 how we typically look at it. And I'm also then --
10 even though the -- the bill that was enacted has no
11 effect with respect to the rule before us, the
12 direction that the bill is moving would suggest to
13 me that this was what was contemplated.
14 MR. HORTON: Thank you, Member Yee.
15 Further discussion, Members?
16 MR. RUNNER: Move adoption.
17 MR. HORTON: Moved adoption by
18 Member Runner, second by Member Steel.
19 Without objection, Members, such will be
20 the order.
21 Thank you very much for appearing before us
22 today. The Board truly appreciates your
23 presentation and testimony.
24 We will now go to Member Yee.
25 MS. YEE: May I ask a question on this?
26 MR. HORTON: Mr. Moon, everyone -- please
27 return.
28 MS. YEE: What kind of guidance are we
30
1 going to be giving to assessors about this?
2 MR. HORTON: Member Yee has asked what type
3 of guidance.
4 And I believe this is a question of Mr.
5 Moon, but, gentlemen, please have a seat.
6 Did you notice both of you are wearing gray
7 suits and blue ties, is that like a uniform or
8 something?
9 MR. DAKESSIAN: I just do what he tells
10 me.
11 MR. HORTON: Okay, all right.
12 Mr. Moon.
13 MR. MOON: Once the -- once the final rule
14 documents are submitted to OAL, the rule, of course,
15 would get published.
16 There is a legal opinion that we are
17 planning to annotate that would give guidance.
18 As well we could certainly have discussions
19 with CAPD to issue an LTA on this issue as well.
20 MS. YEE: I ask only because I don't think
21 this is the last time we're going to see an issue
22 like this where sole concept of control is, you
23 know, just --
24 MR. HORTON: Yeah, even -- even this issue,
25 continuing in the minds of the assessors would be
26 helpful, I think, to engage as the assessors -- and
27 continue to have those types of discussions.
28 I think it's just helpful as we go forward.
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1 So, I certainly encourage that as well.
2 Action has been taken already, this is just
3 discussion.
4 MR. DAKESSIAN: Thank you.
5 ---o0o---
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1 REPORTER'S CERTIFICATE.
2 State of California )
3 ) ss
4 County of Sacramento )
5
6 I, JULI PRICE JACKSON, Hearing Reporter for
7 the California State Board of Equalization certify
8 that on MAY 22, 2014 I recorded verbatim, in
9 shorthand, to the best of my ability, the
10 proceedings in the above-entitled hearing; that I
11 transcribed the shorthand writing into typewriting;
12 and that the preceding pages 1 through 32 constitute
13 a complete and accurate transcription of the
14 shorthand writing.
15
16 Dated: JUNE 4, 2014
17
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19 ____________________________
20 JULI PRICE JACKSON
21 Hearing Reporter
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